The Japanese yen tumbled to a new 20-year low in the 129 zone against the U.S. dollar on Wednesday, as the unit continued to fall on the prospects of a further widening in the interest rate gap between the two countries.
The yen dropped to around 129.40 to the dollar in the morning on a rise in the yield on the benchmark 10-year U.S. Treasury note, marking the Japanese currency's weakest level against the dollar since April 2002. But the unit bounced back to the upper 128 level as investors locked in profits.
The Japanese yen has fallen rapidly in recent weeks, having declined to the 120 level on March 22 for the first time in six years.
At 5 p.m., the dollar fetched 128.65-67 yen compared with 128.86-96 yen in New York and 128.06-08 yen in Tokyo at 5 p.m. Tuesday.
The euro was quoted at $1.0808-0810 and 139.05-09 yen against $1.0782-0792 and 139.02-12 yen in New York and $1.0801-0803 and 138.32-36 yen in Tokyo late Tuesday afternoon.
The yield on the 10-year U.S. Treasury note briefly climbed to the 2.94 percent range on Tuesday, a level not seen since December 2018, fueled by growing expectations that the U.S. central bank will raise interest rates aggressively to fight inflation.
In contrast, the Bank of Japan, which has been maintaining its powerful monetary easing, offered Wednesday to buy unlimited amounts of 10-year Japanese government bonds at a fixed rate to stem a rise in long-term interest rates.
The bond-buying operation, which the BOJ also conducted last month, was announced after the 10-year Japanese government bond yield rose to 0.250 percent during after-hours trading on Tuesday, climbing to around the central bank's implicit upper limit.
The BOJ said it accepted bids to purchase 225.1 billion yen ($1.7 billion) in the bond-buying offer.
"The recent fall of the yen has been caused by the understanding that the BOJ is taking a more dovish stance compared with the U.S. Federal Reserve. That trend continued this morning," said Takuya Kanda, senior researcher at the Gaitame.com Research Institute.
On the yen's return to the 128 level in the afternoon, Kanda said investors secured profits on the dollar's advance before planned talks between Japan's Finance Minister Shunichi Suzuki and U.S. Treasury Secretary Janet Yellen in Washington this week.
The yield on the benchmark 10-year Japanese government bond rose 0.010 percentage point from Tuesday's close to 0.250 percent, tracking an overnight rise in U.S. Treasury yields.
The BOJ said it will buy unlimited quantities of 10-year Japanese government bonds at a fixed rate of 0.25 percent every day between Thursday and Tuesday next week, excluding the weekend.
On the stock market, the 225-issue Nikkei Stock Average ended up 232.76 points, or 0.86 percent, from Tuesday at 27,217.85. The broader Topix index finished 19.45 points, or 1.03 percent, higher at 1,915.15.
On the top-tier Prime Market, gainers were led by transportation equipment, pulp and paper, and farm and fishery issues.
Tracking overnight gains on Wall Street, the benchmark Nikkei index gained ground for the second straight day, supported by export-oriented shares, including automakers, that were boosted by the yen's softening against the U.S. dollar.
Subaru gained 99.5 yen, or 5.4 percent, to 1,936.0 yen, while Nissan Motor rose 24.5 yen, or 4.7 percent, to 550.8 yen and Mitsubishi Motors advanced 15 yen, or 4.7 percent, to 335 yen.
The market also benefited from advances in technology issues following a rise in their U.S. counterparts and an overnight drop in the West Texas Intermediate crude oil futures for May, brokers said.
Market participants are focused on corporate earnings to be released by many companies between later this month and May, brokers said.
Among Prime Market issues, advancing issues outnumbered decliners 1,267 to 521, while 51 ended unchanged.
Trading volume on the Prime Market rose to 1,146.54 million shares from Tuesday's 961.96 million.